I Can Always Depend on Stossel to Cure What Ails Me (JM)

Unless the government watches closely, the airlines will kill you.

As I read this, I picturing a giant, cartoon JetBlue plane tiptoeing up behind me, brandishing a knife. Only to be stopped by a British bobby wearing a hat that says “Government Regulation” on it. Then John Stossel shows up wearing a fedora with a little slip of paper on it that reads “Press”. But perhaps I’ve said too much…

That seems to be what many reporters and politicians believe.

Not, like literally, but yeah inspections seems like a pretty nifty idea.

"The result of inspection failures and enforcement failure [by the Federal Aviation Administration] has meant that aircraft have flown unsafe, un-airworthy and at risk of lives," says Rep. James Oberstar, chairman of the House Transportation Committee.

"The FAA has clearly displayed a dangerous and cavalier lack of regard for tough safety enforcement," says Sen. Hillary Clinton.

And Lou Dobbs of CNN wondered "whether airlines are putting profit ahead of passenger safety."

I mean this seems likely. Look, I don’t think airlines ever want their planes to crash, bad PR, dead employees and lawsuits and whatnot, but their bottom line is still profit maximization and they are less specifically interested in safety than a balance between safety risks and profits. It’s not a choice between all safety and no safety for these airlines, it’s a balance and government regulation clearly helps shift the balance in the direction of greater safety.

Let me get this straight. The only reason airlines care about safety is because of the FAA? So without government, multibillion-dollar companies would jeopardize millions of passengers by unsafely flying $50-million airplanes?

Uhh, no Commander Strawman from the planet Exaggertron Prime, it is one of many reasons.

The media and politicians suggest that airlines would cut corners to make money, but how would that work exactly? Crashing airliners is a route to bankruptcy, not profits.

To be persuaded by this argument, I would actually have to stick my head in an elevator while Delta Burke repeatedly pressed the door close button over and over for a period of three weeks in which I did not eat, sleep or drink anything. Don’t ask me why it has to be Delta Burke, it just has to, okay? Or Gerald McRaney.

But air-travel safety has joined mortgage defaults and global warming as "crises" of the month.

What are all really bad things that deserve to be called crises?

Populists in politics and the media get attention by scaring people into thinking the skies are dangerous. The politicians want more power and attention; the clueless media are genuinely scared.

Yes, keeping airplanes safe, just another step down the road to tyranny. Thank you John Stossel for preventing us from making such a horrible mistake. First they come for the airlines, then they come for the environments, and then the Jews…

The latest "crisis" was launched when the FAA fined Southwest Airlines, which has an excellent safety record, $10.2 million for missing inspection deadlines. When Rep. Oberstar criticized the FAA for being too close to the airlines, the agency sprung into overreaction. "An industry-wide 'audit' commenced, and FAA inspectors set about finding something -- anything -- to show Mr. Oberstar and other Congressional overseers that the agency was up to the job of enforcing federal maintenance requirements to the letter," said The Wall Street Journal.

The Wall Steet Journal!!! Turn this ship around, my argument has run aground against an iceberg of objectivity! Yes, sometimes governmental regulators act politically, but they still have the goal of general safety, they don’t actually decrease the level of safety at all.

One result was the cancellation of 3,300 American Airlines flights and the stranding of 250,000 passengers over several days while 300 MD-80s were grounded so their wiring could be inspected.

Yes, I found this disconcerting too…

American Airlines then did something rare and even heroic. It criticized the agency that regulates it for suddenly changing inspection procedures in ways that have little to do with safety. "We don't know what the rules are," said an American technical crew chief for avionics. Some rules contradict each other, the airline said.

Why yes, they are our greatest heros! Why we need to add a new chapter to Profiles in Courage. American Airlines for complaining about FAA inspections. They are Aeneas, Superman, the Green Lantern, John McCain and Jared from Subway combined. So in sum, very heroic.

The FAA disputes American's claims, but The New York Times reports that "John Goglia, a maintenance expert and former member of the National Transportation Safety Board, said that the rules had, in fact, changed. ... The differences in American's work, he said, were so small that 'those airplanes could have flown for the rest of their careers and those wires would not have been a problem.'"

Look, I obviously do not know the technical details of these regulations. I know I don’t trust you, John Stossel, to not cherry-pick only the most advantageous quotes. But here’s where I stand on this: Any mistake maybe erring against regulation could lead to a lot of dead individuals. There is often no middle ground in airline accidents. I would rather over than under reach and I am certainly not willing to wait and let the market solve.

What about alarmist claims that the FAA has been lax in enforcing its own procedures? If the claims are true, then where are the bodies? The best evidence that FAA enforcement is unnecessary is to assume it's been lax -- and then to note that airline travel, though busier than ever, has never been safer (http://tinyurl.com/6yfm4x).

How is this possible the “best evidence”? Assume it’s not doing its job and then we can assume it’s ineffectual. You, sir, are silly. Also how about massive advances in technology explaining an increase in safety? However, we can still make it safer.

We need to rethink the premise that government inspections keep us safe.

Based entirely on the no evidence you have provided us with.

Clifford Winston and Robert W. Crandall of the Brookings Institution write: "[T]he fundamental problem with most regulation is that the regulatory agency does not have sufficient information, flexibility and immunity from political pressure to regulate firms' behavior effectively. Fortunately, the market, and in some cases the liability system, provide sufficient incentives for firms to behave in a socially beneficial manner."

This is the most generic and stupid sentence I have ever seen. It’s not like these are mutual exclusive propositions, right? The market still exists too, they might have slightly better information, but not as strong motivation. For the FAA the ultimate goal is safety, for the market the ultimate goal is profit maximization. I would prefer to have both in place. Also I am not sure why the FAA doesn’t have adequate information, it’s not like they hire some guy named Ron off the street to inspect these planes. It’s usually, you know, aviation engineers and the like.

To see who really regulates air safety, do a thought experiment suggested by George Mason University economist Donald Boudreaux, who blogs at Cafe Hayek:

Ooh George Mason University AND a blogger for Café Hayek… I have never heard of Café Hayek, but we can all safely assume the delightful island of rationality that is. So, anyway, prepare for some objective truth people.

"Suppose that all government regulation of airlines were abolished today. Does ... Congressman [Oberstar] suppose that airline executives would tomorrow fire all inspectors and maintenance crews, indifferent to the prospect of losing multimillion-dollar assets in fiery crashes? Does he not see that airlines with poor safety records would have difficulty attracting customers? Is he unaware that airlines' insurers have ample incentives to work closely with airlines at keeping air-travel safety at optimal levels? In short, is Mr. Oberstar really so dimwitted to think that airlines will be safe only if they are regulated by government?"

Look, I don’t think that if the FAA went away that airlines would start flying double-decker planes a la the Wright Brothers. I can safely say that there won’t be pedaling involved. But many more fly-by-night (pun absolutely intended) airlines would pop up, willing to risk a whole lot more in exchange for some quick profit. Hell, remember ValuJet, which is now AirTran, some of these airlines just change their names. Some consumers are aware of safety records, most are aware of the cheapest flights on Expedia. We would see an influx of much cheaper, more risky airlines. Regulation merely doubles down, it catches that which the market doesn’t solve for. Even one accident is too much a of a price to pay for deregulation.

Yes, I think he is.

And sadly, most of his colleagues, and mine, agree with him.

One person’s definition of sad is another person’s definition of sheer relief.

Market Regulators Available, Absolutely No Specifics Required (JM)

A New New Deal

This column isn’t terrible, but there’s just something like a title like this that screams bad, generic, economic advice.

By Harold Meyerson
Thursday, March 20, 2008; A15

Putting together everything we've learned over the past 10 days about high finance in Manhattan, one thing is clear: If Eliot Spitzer had saved all the money he apparently paid"Kristen" and her co-workers at the Emperors Club, he could have bought Bear Stearns.

This is what we in the “biz” like to call hyperbole. Also new rule, if your only column lede is a bad joke about Eliot Spitzer and your column is not about Eliot Spitzer then just stop, just stop. Also we can probably have a moratorium on columns about Spitzer for some time, there’s really not much to say anymore.

Manhattan's culture of conspicuous consumption and conspicuous collapse has been on display in recent days as it has not since 1929. Now, as then, an edifice of shaky credit is toppling. Now, as then, what we took to be prosperity turns out to have been a bubble.

I am not really sure that Manhattan has a “culture of conspicuous consumption and conspicuous collapse”. In fact, I am not sure how that’s a cultural phenomenon at all. So far two paragraphs, one relevant sentence, “What we took to be prosperity turns out to have been a bubble.” Aces.

The key lesson Americans need to learn from today's troubles is how to distinguish faux prosperity from the genuine article. Over the past hundred years, we've experienced both. In the three decades after World War II we had the real thing. Led by our manufacturing sector, productivity increased at a rapid clip and median family incomes rose at a virtually identical rate. The value of the American work product grew significantly and that value was shared with American workers.

I am feeling about 70 percent prosperous right now, but I am pretty sure there’s a healthy degree of faux prosperity in there as well. Individuals are notoriously bad at assessing this kind of risk, in fact it’s nearly impossible on the individual level. Maybe economists, pundits and politicians need to be better, perhaps we ought to be a more risk adverse society, but also there may be nothing we can do to avoid these occasional problems.

But we've had other periods of apparent prosperity that were based not on broad increases in personal income but on the inflation of assets. So it was with stocks in the late 1920s, a time when most Americans lacked substantial purchasing power. So it was with the dot-com bubble of the late '90s. And so it was with the rising value of American homes in recent years.

In the broadest sense, the American economy over the past three decades has been powered by ever more ingenious extensions of credit to a people whose incomes were going nowhere, unless they were in the wealthiest 10 percent of the population. There were some limits, as a result of New Deal regulations, on how old-line banks could extend credit, but investment banks and other institutions not legally obliged to keep a certain amount of cash in reserve operated under no such constraints. The risk was that one day, burdened by debt and static incomes, American homeowners would have trouble making their payments and the house of cards would come tumbling down. But what were the odds of that?

I agree with this, this was a problem, but I actually think it was less of an economic problem and more of a cultural issue. Conspicuous consumption has always been one of the major demarcations of success and status in our society. Home ownership was a key aspect of the so-called “American dream”. Our culture has created a standard of normality that is anything but normal and anything but within the means of most individuals in our society. The consequences of this are necessarily tragic.

Pretty good, it turns out. And out of this debacle emerge two paramount lessons for our highest-ranking policymakers: Regulate the American financial sector, which is now turning to the government for a bailout. And commit the government to doing all in its power to generate broad-based prosperity, through laws enabling workers to bargain collectively, through a massive public commitment to projects "greening" the economy, through provision of universal health coverage and affordable college educations.

Okay, see here’s the issue. Regulate the financial sector means absolutely nothing. It’s a word that could imply over infinity different actions. I agree that the market needs some semblance of regulation (particularly transparency when it comes to incredibly complex credit deals and financial structuring), but I am not sure this solves the underlying problem. If people want something the market is going to create a way to sell it to them, even if the long-term consequences are bad.

I would like to know more about these specific collective bargaining laws to which he referring. For the most part collective bargaining and unionization is allowed, and would need to know what specific proposals would be implimented, but either way their effect would be negligible. “Green jobs” is something I really, really don’t get. I mean I am totally for them, I like jobs and I like the environment, but maybe I am missing something on the impact here, but politicians seems to be pushing these as a panacea for American job loss and that seems to me like quite the exaggeration. Thumbs up universal health coverage and affordable college education too, but neither of these really hits the heart of the problem.

People want stuff, not just because they want it, but because it is indicative of status and strength in society. Yes, consumption displays itself differently in the various segments of our society, but still there are many key trends like home and car ownership (along with trends specific to specific communities). The truly pernicious factor here is that one of the key reasons this cultural narrative will never change is that the corporate complex has every interest in marketing life that way, encouraging people to consume. The narrative of the American dream is one enhanced and perpetuated by television, books, commercials, movies and all other forms of media.

These are themes that should be central to the candidacies of Barack Obama and Hillary Clinton. If the Democrats are to win this year and then govern effectively, they need to offer a new New Deal to the American people. John McCain is at a distinct disadvantage in such a discussion: As the self-proclaimed heir to Ronald Reagan's legacy, he's no friend of the original New Deal, much less a new one.

First of all these themes are only tangentially involved in the New Deal, but I agree economics should be the centerpiece of all the campaigns. But Americans need more, they need be convinced that there are great priorities than personal prosperity. That everyone deserves basic needs, like education, food, housing and other things that are template for a satisfying life.

On the regulatory front, now that the Federal Reserve is extending credit to the 20 largest dealers in securities -- affording them the same advantages it had hitherto extended only to regulated commercial banks -- it's only proper that those firms be subjected to regulations similar to those under which banks operate (which themselves need strengthening). Otherwise, the government is assuming risks incurred by the wildest operators on the Street.

Sure, but securities deals are by their very nature different entities, it seems weird to write articles about generic regulations with no specificity.

Which, of course, is exactly what the Fed did in agreeing to take $30 billion of Bear Stearns's riskiest securities off J.P. Morgan's hands as a condition of its purchase of Bear. The Fed justifies these extensions of credit and assumptions of risk as necessary to prevent a financial meltdown, and the Fed is probably right. But what about the issue of equity, in both senses of that word -- ownership and fairness?

I honestly have no clue what he is complaining about here. Yes, it sucks that we had to pick up all this toxic risk from Bear Stearns, especially since the advantage is just going straight in to J.P. Morgan’s pocket. However, I have no clue what type of equity he would prefer in exchange. This isn’t as bad as Maureen trying to write about complex finance, but it is bad in that it riles people up who are then interested in bizarre generic solutions. Now, any time a politician says we will regulate the banks people can be like, “Yippie! That’s exactly what they need, some good old regulation…”

Specifically, if the Fed's role in the Bear buyout is a model for its dealings in future Wall Street failures, it could well pay good money for warehouses of worthless paper while future J.P. Morgans make off with the money-making sides of the beleaguered banks. This solution doesn't look to be a great deal for the American public. It looks even worse when we recall that other governments -- including those of China, Abu Dhabi and Kuwait -- have also been bailing out our banks, through sovereign wealth funds, while getting shares in those companies in return.

Yes, this is why the Fed bailout is better than foreign buyouts. The real question here is what is your alternative to the Fed intervening in this case. Should they have let Bear Stearns go under? There’s an argument there, but I would think the horrendous consequences of that decision outweigh the future moral hazard of a buyout, but either way it’s not like there’s alternatives being provided in this column.

Can't the American people get as good a deal as the Chinese when our government bails out a major American bank? At minimum, some public representation on the bank's board? Reshaping the U.S. economy, now part of the global economy, so that it actually benefits Americans won't be easy. But it must be done. Bring on the new New Deal.

Won’t be easy, how about nigh unto impossible. Seriously, governments cannot corral or manage economies. Unless you want to go all the way and create a planned economy, which would be an entirely different and perfectly reasonable debate, there is very little we can do work the economy. A government representative on the board of J.P. Morgan would be the height of insanity. I mean could you imagine a board room debate about well anything and then out of the corner comes a little:

“Hem, hem…”

“Err, yes?”

“Quite sorry to bother you, but that’s not how we do finance over at the Ministry of Magic.”

“Umm…”

The point is, the Ministry shouldn’t interfere at Hogwarts, nor should the government interfere too terribly much at J.P. Morgan.

I am all for sound regulations of the market, mostly on the level of transparency, I am also for all sort of government programs to help level the playing field. Put this sort of “here’s a problem, therefore solution” is both counterproductive and occasionally dangerous. Crafting sound economic policy is a matter of both detail and a long discussion of what is fair and right. This article eschews the former, while assuming the latter, and to me that’s a problem.

Commercial Speech, Lipitor and Regulations, Oh My (JM)

Is there such a thing as distinctly commercial speech? Well throughout our legal history, since the Valentine decision in 1942, it has been considered a unique class of speech with varying levels of isolation. I am not going to bore you with a layman's con law history of "commercial speech" conceptions. Instead, the First Amendment Center provides a pretty good historical overview, if you're interested. I would rather get to the broader implications of this issue.

Pfizer today decided to remove those heinous Dr. Robert Jarvik advertisements for Lipitor. They were particularly disagreeable ads because Robert Jarvik is not a medical doctor of any sort. Of course, when we watch commercials like this, we have absolutely no point of reference for authority. Which is why, of course, it is insanely stupid to make your own medical decisions, especially on the basis of commercials (for instance, I am pretty sure I want Cialis, I equally sure I don't know what it does). But as crazy as self-diagnosis and self-medication is, it is a full on trend in American society. Mark Penn actually does a really good job laying out and establishing this pattern in his book Microtrends. The fact is, that more and more people are influenced by these advertisements.

This leads to one of the key problems with the "marketplace of ideas" metaphor that is supposed to protect us from any damage that granting absolute first amendment rights to commercial enterprises: we don't have perfect information. The "marketplace" is an awesome metaphor if all ideas have an opportunity to be weighed equally. However, that is so obviously not the case. Instead we live in a society where our exposure to these commercial ideas is essentially proportional to the money backing those ideas. Moreover, these ideas don't come at the public in the form of discourse and contention, but instead are highly stylized, culturized packets of noise with the express goal of connecting us with the object's identity without ever being connected to the explicit content of the object itself; again, I need Cialis, but I know not what it is. I know distortions of the marketplace are kind of my hobbyhorse, but the marketplace is not simply one dimensional and has many assumed aspects that are not necessarily as freeing as free-marketeers would have you believe.

Now in the case of medical drugs there is the presumed counterbalance of physician prescriptions. However, doctors are becoming increasingly complacent in their right to veto the prescription of drugs, ceding ever more to their patients' whims. An even deeper issue is that these very same drug companies intensely market doctors with free gifts, trips and incredibly attractive salespeople. The truth is that on both ends of the spectrum "commercial speech" is taking place, but rarely is that speech about the actual product.

It's this disconnect that worries me. It seems quite clear to me that commercial enterprises have a right to inform the public about their product, and in turn the people have a right to be informed. The problem is this shift from actually informing the public to the types of advertisements we see today. I think the government has a very real role in making sure to protect speech, but also guarantee that speech is informative. Of course, this sounds rife with the possibilities for corruption. Obviously some balance must be struck. However, on one hand government regulation tempered with commercial opposition might provide some good, while our other option is to allow commercial speech unfettered. People always assume this weird false dichotomy, it's either government intervention or freedom. That's missing the boat, it's either government intervention or market intervention (or any countless types of intervention), the point is freedom is always referential, it is not some natural state that is oppressed only by dint of governance.

Why The Free Market and Walmart Are Responsible for Our Problems (JM)

Dear God,

I am feeling bitter and snarky today. Please send me an incredibly vapid article to mock mercilessly.

Yours,

Jonathan

Presidents Can't Manage the Economy

By John Stossel

Thank you.

The presidential candidates have been repeatedly asked how they would "manage the economy." With the exception of Ron Paul, every candidate has accepted the premise that this is something the president of the United States should do.

Wellity, wellity, wellity, wellity, if every single candidate but Ron Paul agrees, along with every POTUS in the history of our country, you, John Stossel must be right.

Or can do.

Nonsense.

I just like to picture John Stossel. Sitting as his computer, shaking his head slowly as he types. He looks up and the giant portrait of Milton Friedman sitting a top his fire place, smiles knowingly, and thanks the free market that saw fit to make him a professional political commentator.

Democrats act like the president is national economic manager. Republicans pay lip service to free markets, tax and spending cuts, and less regulation -- before proposing big programs to achieve "energy independence," job training and a cooler climate.

These seem like eminently laudable goals. Goals that are perfectly within the scope of government and goals there is little to no market incentive to achieve.

John McCain says it's important for government to do something "to sustain our leadership in manufacturing". Why? Manufacturing jobs are no better for America than other jobs. Some argue that they are worse. How many parents want their children to work in factories rather than offices? Increasing service jobs in medical, financial and computer sectors while importing manufactured goods doesn't hurt America. It helps America.

There are so many problems with this scenario that I am baffled as to where to begin. It’s kind of like the Mt. Everest of wrongheaded, idiotic, free-marketeeringism. Okay, so I guess let’s tackle this manufacturing jobs comment, the thing is that it’s not like these are hypothetical future jobs we are ordering out of a catalog. These are jobs that we are losing right now or have lost in the recent past. As lovely as it would be to replace boxmaker with doctor, it just does not work that way. What happens instead is communities get devestated and other businesses in these areas begin to dry up (see Michigan). I can see the Stossel response already: “Well move and get retrained. Ridiculous. Do I need to think of everything?” Of course, this is insane as these people rarely have the money to get retrained and there is no market incentive to retrain them as there is no need for service jobs in the local economy if there is no money to pay for them. Also moving is not quite an option, as the likely don’t have the money needed to relocate and they’ll already be at a competitive disadvantage.

Market forces are notoriously cruel. The problem with free market analysis (aside from the fact that it doesn’t consider distribution an important factor in comprehending overall wealth) is that people aren’t figures on a ledger. I agree, service oriented jobs are better than manufacturing jobs. But the market can’t magically turn people in to doctors and also there are some people who simply do not have the capacity to work in these higher end industries.

The candidates see the global economy as an arena in which countries compete against one another -- an economic Olympiad with winners and losers. Politicians love to promise they will keep America No. 1, as if that matters in a worldwide marketplace.

Umm… I think it does. Ridiculous. There, I can be dismissive with no arguments too Stossel.

America as a nation does not compete against China or South Korea or Japan. American companies compete against companies in other countries, but that's something else. The purpose of production is consumption, and American consumers prosper when foreigners compete successfully with American companies.

Except for those who are making no wages because America has no more jobs for which they are qualified. You can’t consume a whole lot without the means to purchase things to consume. The purpose of production is both consumption and achieving a means to consume. It’s actually a balance of these two things, a factor you just seem to ignore in your constant worship of Pope Free Market III.

A president who sees the global economy as a competition among nations will be tempted to intervene on behalf of the "United States" and create "good American jobs." That's how governments mess up economies.

Yeah, screw you government intervention. The free market keeps economic disasters from happening. Cough.. subprime, cough.. Enron, cough.. WorldCom. Seriously, do you only get your financial news from corporate press releases and The Heritage Foundation?

McCain says, "It is government's job to help workers get the education and training they need for the new jobs". Mike Huckabee (who glories in public-works projects as a job-creation machine) and Barack Obama talk in similar terms.

That hardly shows confidence in the free market, which, if allowed, would train and educate workers just fine. But it shows misplaced confidence in the federal government, which, as journalist Jim Bovard has shown, has an unbelievably bad track record at doing it. The endless list of programs, like the Manpower Development and Training Administration, Comprehensive Employment and Training Act, Job Training Partnership Act, STIP, BEST, YIEPP, YACC, SCSEP, HIRE, etc., wasted billions and "distorted people's lives and careers by making false promises, leading them to believe that a year or two in this or that program was the key to the future. ... Federal training programs have tended to place people in low-paying jobs, if trainees got jobs at all.".

Evidence, my friend, is more than a list of programs and an assertion that they were bad. Also the New Deal definitely helped the economy, much like a massive public works/infrastructure project would be totally perfect for the economy and our society right now. Also maybe federal job training led to many low paying jobs, but its not like we expected people in federal job training to become the CEO of Starbucks. At least they have jobs, federal training vs. no training, I’ll take some training. Seriously, it’s amazing how Stossel just asserts that the free market will create training and education. Where and how does this ever happen? What about times when the cost is not worth it to these companies, oh well, you can be jobless until the market needs you. Also there is a giant collective action problem in the market. Government training is more likely to fill job roles, especially in smaller companies that cannot afford to run massive job training programs and educational initative.

Sen. Hillary Clinton told The New York Times recently, "I want to get back to the appropriate balance of power between government and the market. ... You try to find common ground, insofar as possible. But if you really believe you have to manage the economy, you have to stake a lot of your presidency on it."

Notice that she equates government power and market power. That is absurd. "Power" in a free market means success at creating goods and services that your fellow human beings voluntarily choose to buy. Government power is force: the ability to fine and imprison people.

Sweet sassy molassy!!! “Power” in the free market means having the money to crowd out your neighbors, out market them, undercut salaries and have rockbottom prices to drive your competitors out. Walmart is the canonical example of market “power” that has nothing, nothing in the world to do with “success at creating goods and services”. Market “power” is being able to afford attorneys and legal infrastructures to protect you from litigation when you cut corners or violate regulations. Even if we assume perfect information, the market is totally distorted in favor of the bigger players and power and inevitably moves further in that direction.

On the other hand, yes, the government has coercive power. But the particular nature of the power is way less important than the end to which that power is used. When a company like Walmart exercises its power it is specifically and only towards the end of promoting Walmart’s interest. In general, this will be good for the narrow community of stockholders and those people in society to whom their beneficence randomly trickles down. Instead, the governments goal is, or at least ought to be, the protect and support of the people at large. One of the main reasons this goal is ever distorted is because of market interventions within the governmental process: lobbying, campaign donations and the like. People wonder when “liberal” came to be synonymous with “big government”, the answer is it happened when big corporations became an overwhelm force. Big government protects against the vagaries and selfishness of the free market. In the aggregate, government protects our liberty, it doesn’t restrict it.

Politicians who talk about managing the economy ignore the fact that, strictly speaking, there is no economy. There are only people producing, buying and selling goods and services. Keep that in mind, and one realizes that government action more often than not interferes with the productive activities that benefit everyone. When politicians propose regulations to fix some problem, they should ask if some earlier intervention created the problem and if the new regulations will make things worse. The answer to both questions is usually yes.

Again, this is totally insane. I agree there are good market forces we should allow to do their thing. But the places where the market “goes wrong” are rarely places where the government has intervened. In fact, it’s usually in places where the economy is so complex it’s like a Rube Goldberg machine. Places where we have such complex and opaque mechanisms, like in objects like OTC derivatives, cry out for transparency regulations. Instead, we far too often see regulations that the market calls for, regulations that protect creditor’s interests. The truth is the free-marketites already cry out for regulation when it comes to the protect of property rights. That’s something they are totally down with. However, when it comes to any other rights conception they want us to stay out of the way and let the market do its magic.

Ridiculous.

The economy is far too complex for any president -- no matter how smart -- to manage. How can politicians and bureaucrats possibly know what hundreds of millions of individuals know, want and aspire to? How can government employees fathom what trade-offs to make in a world of scarce resources?

These are well trained smart people, reflecting on the needs of general society instead of the needs of an individual corporation.

They can't. That's why free people are more prosperous than unfree people.

Of course, this assumes that we are all starting from an equal playing field. I am sure individuals do have a pretty good idea of what they want and need. But usually they can’t afford it or they are not intellectually equipped to do it. This is where the government needs to step in, not out.

Presidential candidates should promise to keep their hands off the economy.

Just like perennial winner Ron Paul or maybe President Stossel.

John Stossel Loves Rich People (JM)

Who's Afraid of Prosperity?

If I had to bet, my guess is me… not prosperity, per se… I mean I’ve wanted a top hat and a monocle as long as I can remember, but your definition of prosperity… almost certainly.

By John Stossel

Should we worry that the people of China, India and other undeveloped countries are getting richer? Apparently so, according to the newspapers and the "experts" they quote. They don't come right out and say that global prosperity is bad for us. Instead they say, as The New York Times recently said, "As development rolls across once-destitute countries at a breakneck pace, lifting billions out of poverty, demand for food, metals and fuel is red-hot, and suppliers are struggling to meet it. Prices are spiraling, and Americans find themselves in what amounts to a bidding war with overseas buyers for products as diverse as milk and gasoline."

I am not terribly protectionist, but this seems like a pretty bad problem, especially given the devaluing of the U.S. dollar.

It is certainly true that China's economy is expanding dramatically -- 10 percent last year. The Chinese build factories like crazy to pump out the inexpensive exports we Americans love to buy. To do that, Chinese producers have to purchase oil, steel and lots of other commodities. The new demand drives prices up.

These are some more reasons to be a bit scared of prosperity.

And as the Chinese and other people get richer, they improve their diets and eat more meat, putting pressure on world food prices.

Okay, if I didn’t know Stossel better than this, I would think he’s about to make the perfectly reasonable argument that it is totally ridiculous for us to be angry at China for being less poor. It’s pretty hypocritical. It’s kind of akin to L. Goldsquire Bennington, III getting angry at Homeless Joe for winning the lottery and outbidding him for the Maserati he wanted to add to his extensive collection. In other words, it is shitty for us to be pissed when someone else is getting a share of the pie. However, this is John Stossel, altruism is not his concern; magic is.

So media handwringers suggest we should worry about the poor becoming rich.

Actually, we shouldn't. It would be a sad world if one person's economic success depended on another's failure.

Agreed.

More of us would understand this if we learned what the great economics writer Henry Hazlitt preached in his classic book, "Economics in One Lesson": "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy."

Seems fair…

In the short run, richer Chinese and Indians bid up the prices of things. But that's just the beginning of the story. Increased demand and higher prices create opportunities for entrepreneurs.

Yuh oh…

When the price of, say, oil goes up, entrepreneurs and inventors have a strong incentive to: 1) find more, 2) find alternatives, and 3) find ways to use oil more efficiently. You and I cannot foresee what they will invent, but that means nothing. Predictions about the end of progress have been issued countless times. There is no reason to think they will be right this time.

John Stossel is super awesome, he has a magical faith in entrepreneurs, but refuses to believe in the power of prediction. Evidence, schmevidence! We’ve survived before, why wouldn’t we survive now! John Stossel also thinks it’s going to snow tomorrow because the meteorologists predicted clear weather yesterday and they were wrong about that.

However, it is his faith in magical, super, free-market wizards known as entrepreneurs that truly amazes me. Here’s what they have a “strong incentive to do: 1) find more oil – Stossel, of course, rightly believes that oil is not a finite resource, that with the right amount of innovation and stick-to-itiveness there are boundless fields of oil right before our very eyes; 2) find alternatives – this is a great suggestion, one we will need to take up because point number 1 is literally insane; however, the excess of consumption that is about to occur narrows the frame of time we have to do this important work, work that is not somehow better because of its increased desperation; 3) efficiency is like another magical free market junkie term that makes little to no sense, but here’s the real rub, you John Stossel do not believe in mandating efficiency. You are against every fuel efficiency standard in the book. So while there may be more efficient processes, they are not going to be ubiquitous or required in Freidonia. Moreover, there is obviously a cap on how much this helps given that fuel, despite however much free market wizardry you throw at it, is a limited resource.

Assuming government stays out of the way. Our current "leaders" are full of promises about "protecting" workers and industries, creating new "green" industries, and starting worker-retraining programs. For example, Hillary Clinton promises government support for "research (to) stimulate the development of new technologies and life-saving medicines." Mitt Romney wants "to initiate a bold, far-reaching research initiative -- an Energy Revolution, if you will. It will be our generation's equivalent of the Manhattan Project or the mission to the moon."

These seem like reasonable ideas, the government has provided progress on many technologies, particularly medicine. Energy seems like a pretty fair equivalent.

The media lap it up, apparently believing that no one will produce unless our wise leaders create an inducement. Nonsense.

All except you oh wise John Stossel! Also you can’t say “nonsense” at the end of a sentence and pretend you’ve proven your point. That’s ridiculous.

The market would deliver the goods if government doesn't impose crippling regulations and tax away everyone's capital to fund its coercive utopian schemes. I like what Henry David Thoreau once said: "This government never furthered any enterprise but by the alacrity with which it got out of the way."

Yes, crippling regulations are awful terrible things. I am sure glad Enron and WorldCom didn’t have to deal with crippling regulations. I bet it was taxation that caused the subprime crisis, if we just had allowed the market to exist freely everything would just be aces. I am going to say this once, because I think this is really really important. There is no such thing as a free market. All markets depend on the existence of governing and regulatory bodies to enforce contracts, property rights and all other conceptions legitimate business practice. If governments didn’t regulate what would credit card companies do when people refused to pay their debts. The fact is that we spend an enormous amount of our public resources providing maintenance for the market system. In turn, we ought to have some semblance of regulation. That’s the other thing, there is no natural state of freedom. There are different conceptions, largely driven by cultural conceptions of what freedom means. Heck, property ownership isn’t even a real thing, but rather a social constructed entity. So talk about the market like it’s some sort of state of nature is totally batshit crazy, so let’s just stop.

George Mason University economist Alexander Tabarrok has another way to demonstrate the benefits of spreading prosperity. Tabarrok wrote in Forbes recently that the bigger the market, the more worthwhile it is for companies to make products that require costly research and development, such as medicines and chemicals. As the Chinese and Indians become more able to buy things, businesses everywhere will find it profitable to make products that yesterday weren't profitable enough. The result will be cures for diseases and other products that make our lives better.

I agree with this, again I don’t think protectionism matters. Of course, there’s always the issue of what happens when the prices of medicine go so high that people in the U.S. can no longer afford it. Stossel’s reply: innovation!

Tabarrok takes this a step further: "Amazingly, there are only about 6 million scientists and engineers in the entire world, nearly a quarter of whom are in the U.S. Poverty means that millions of potentially world-class scientists today spend their lives trying to eke out a subsistence living, rather than leading mankind's charge into the future. But if the world as a whole were as wealthy as the U.S. and were devoting the same share of population to research and development, there would be more than five times as many scientists and engineers worldwide."

I would totally agree with this if I were sure that this weren’t a zero-sum game. However, I am not sure either way. Maybe, this increase in prosperity would lead to an increase in global wealth, maybe it wouldn’t. It sure seems to hurt in the short term. Here’s the thing, periods of adjustment and sacrifice aren’t numbers on a ledger, they are real actual people getting harmed. Some of these people don’t get to live in the long term and are not acceptable casualties of John Stossel march towards growth. Moreover, even with overall increases distribution matters a great deal and it is hard for me to believe the benefits of this growth will be felt by the people sacrificed on its altar.

The other, way more persuasive argument is this: It is totally wretched that because of a certain set of arbitrary lines we call borders I am entitled to a pretty nice life, while someone else is entitled to backbreaking poverty. The existence of nations is a defacto way of maintaining a rather oppressive and selfish system. The problem is that very few people deal with the problem in these terms (and if they do they often are crazy impractical revolutionaries). These ought to be a real and sincere dialogue about the global divide between rich and poor, but yelling innovation or anarchy are neither of them it.

When it comes to being wealthy, the more the merrier.

Sure… why not.

You Know It's Bad When Something Makes Rants About Global Warming Not Existing Seem Thoughtful (JM)

A Freer World is a Better World

Why do I automatically cringe when I see a headline like this? I mean I like freedom, it's a good thing. Yet, somehow I have a feeling I am going to get as much "freedom" from this article as I get "reason" from reading Reason.*

By John Stossel

This week's newspapers are full of predictions of an impending recession, and maybe they're right. But the great untold story is the good news: the worldwide boom in economic growth.

This is really good to know, because growth is an excellent measure of the economic health of the country. Distribution is totally irrelevant, growth, that’s where it’s at. I hear it all trickles down anyway.

"I think one of the best kept secrets is that the world is in the midst of an economic boom, and it is largely driven by increases in economic freedom," says economics professor James Gwartney, director of the Stavros Center for the Advancement of Free Enterprise and Economic Education at Florida State University. "The world has become more free, and, at the same time, growth is soaring to new highs. During 1995 to 2005, the growth rate of per capita GDP in 99 countries for which data are available has increased to 2.2 percent, nearly twice the rate of recent decades. Since 2000, the annual growth rate of per capita GDP has been even more rapid, 3.2 percent."

WHAT?! James Gwartney, of the “Stavros Center for the Advancement of Free Enterprise and Economic Education at FSU” thinks the economic freedom leads to growth?! The devil you say! Pizza Hut just informed me that pizza leads to deliciosity. Seriously, I mean we all know that 99.9 percent of econ departments are unabashed champions for Saint Free Market of Assisi, but I mean come on, isn’t this a little on the nose? Also the evidence, more growth has occurred over a ten year period. Yep, causal link=established. Well done, James Gwartney, let’s all go home and open up our markets and watch as out bank accounts skyrocket. What’s that? You have more… excellent.

As the world gets freer, says Gwartney, it gets richer.

He should know. For years, Gwartney and Robert Lawson of Capital University have compiled an index showing the solid relationship between economic freedom and economic growth. The latest index, covering 2005, was recently published by the Economic Freedom Network, which comprises more than 70 policy institutes worldwide, from Albania to Zambia.

Hmmmmmm… this is so compelling actual data is unnecessary. I will just go on the word of John Stossel, former 20-20 investigator who doesn’t believe in global warming, but does believe in the magical panacea of the free market.

The story the index tells couldn't be clearer: Economic freedom produces high living standards.

It seems I have heard this somewhere before.

This insight shouldn't come as news, but unfortunately it will because prejudice against the profit motive and property rights leads many to believe that government coercion is better than free markets at making life better.

What is economic freedom exactly? As the report puts it, "individuals have economic freedom when they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others."

The researchers ranked countries according to five criteria: size of government, security of property, access to sound money, freedom to trade internationally and level of regulation.

The top five freest countries in 2005 were Hong Kong, Singapore, New Zealand, Switzerland and the United States. That's a slight slip for the United States, which in 2004 came in third. We've never placed higher than second (in 2000).

God damn the United States, only number two?! Seriously guys, stop regulating markets. If we’ve learned anything from Enron, WorldCom, the subprime crisis, the impeding foreign debt implosion, it’s one thing: the market will solve.

The next five are the United Kingdom, Canada, Estonia, Ireland and Australia. The bottom five are Republic of the Congo, Angola, Democratic Republic of the Congo, Myanmar and Zimbabwe.

It's hard to miss the point: The freest countries are far more pleasant places in which to live. Countries with little or no economic freedom make life hellish for all but the politicians or dictators in charge (and even for some of them).

This is LITERALLY the funniest argument I have ever read. Everyone ready now: John Stossel believes life is bad in the Republic of the Congo, Angola, Democratic Republic of the Congo, Myanmar and Zimbabwe because they don’t have enough free trade! This is amazing, let’s leave alone the fact that two of these countries are so wartorn with violence that there is a “Republic and Democratic Republic”. Let’s forget that John himself pointed out that most of these places are dictatorial regimes. Let’s forget that this is a totally insane study with absolutely no statistical controls whatsoever that can largely be categorized as: bad shitty countries are in trouble and wealthy, industrialized countries are doing well. Let’s ALSO forget the fact that for the most part countries with more progressive, regulated markets in Europe are doing pretty well economically. Let’s finally forget the fact that even if there were economic growth in these countries it would be distributed in such a way that, well Angola will still look like Angola, but some warlord will have palace that makes Disney World and the French Riviera look like housing projects. Let’s free up those markets and have international trade, then the people of Myanmar can enjoy a quality of life and freedom similar to the people of Singapore.

I hate you so much John Stossel. I also hate you James Gwartney.

The good news, says Gwartney, is that economic freedom is increasing. "The average rating of the 99 countries for which data are available continuously since 1980 has increased from 5.5 in 1985 to 6.6 in 2005," he says. "The primary factors underlying this increase are lower top marginal tax rates, more stable monetary policy, lower tariffs and less regulation of international trade and some relaxation of restrictions on the movement of capital."

Good news, rich people will by paying less taxes. This will be good for everyone. Remember, there is no poverty in America… and if there is, it’s because of taxes.

Gwartney's data also show the relationship between economic freedom and income. As countries get freer, per capita GDP rises. The least-free nations have a per-capita GDP of about $3,300. The next group up the freedom ladder has a per capita GDP of about $6,100; the next, $10,773. The freest group of nations comes in at more than $26,000.

Angola v. the United States: the only differences are lower top marginal tax rates and lower tariffs.

Gwartney's data show that it's better to be poor in a more-free country than in a less-free country. In the freest countries, the poorest 10 percent earn on average more than $7,300 a year versus $905 in the least free countries. And, of course, in a free society, people often move out of the poorest groups.

Whoops, John Stossel finally realizes part of the problem with his argument. But only part of it. I mean serious, yeah it sucks more to be poor in the Democratic Republic of the Congo, but definitely not because economic freedoms. Also I would question his definition of “often” when it comes to social mobility, but the degree of social mobility we have has nothing in the world to do with economic freedom, but years of market regulation. From consistently desegregating business and business networks, to providing social safety nets, giving free education to all, basically providing opportunities for individuals the market would never solve for, this is how we have social mobility. Not less regulations on international trade.

Finally, the study also finds a strong correlation between economic freedom and environmental quality.

I am trying to acquire this study, I find this very very difficult to believe, unless they are counting the fact that some of these countries simply don’t have modern sewage systems, you know because of tariffs.

It is beyond dispute. Economic freedom leads to good things, while government coercion leads to poverty and oppression.

Complete beyond it, irrefutable. Here’s you Nobel Prize, MacArthur Genius Grant and The Mayor McCheese McDonaldland Citizen of the Year Award.

It's stunning that some people still find the free market controversial.

It’s stunning that people publish your articles.

*Reason, if you don't know, is a totally inane, wrongheaded, libertarian magazine. I am sure that we will be discussing them in the near future. For those of you not already aware, the authors of this blog hate libertarianism and believe that those that espouse it are usually too dumb to realize its oversimplicity or too selfish to care.